Following the Bangko Sentral ng Pilipinas’ (BSP) policy rate cut, local currency bond issuances increased by 11 percent in the third quarter, while foreign-denominated sustainability bonds surged by 20.3 percent.

The Asian Development Bank’s (ADB) Bond Monitor report on Wednesday showed the latest peso bond issuances amounting to P2.9 trillion followed a 15.7 percent contraction in the second quarter.

Specifically, government-issued bonds increased by 34 percent while corporate bonds rose by more than three-fold to P165.4 billion.

These figures were recorded after the BSP cut its policy rate in August by 25 basis points to 6.25 percent, signaling lower inflation rates that could spur higher consumption of goods and services among households and businesses.

The largest corporate issuer was BDO Unibank which raised P55.7 billion from sustainability bonds, translating to 33.7 percent of the total corporate issuances in the third quarter.

It was followed by the Bank of the Philippine Islands which raised P33.7 billion from sustainability bonds. These accounted for 20.4 percent of all corporate bonds issued in the same period.

Banks and investment houses remained the largest investor group for peso bonds, although its share slightly shrank to 45.7 percent this year from 46.6 percent in 2023.

More sustainability funds

Due to huge corporate-issued sustainability bonds, total outstanding sustainability bonds grew 20.3 percent to $10.9 billion in the third quarter.

The majority of these bonds or 66 percent were foreign-denominated.

“The government sector typically issues longer-term sustainable bonds that are denominated in foreign currencies, whereas the private sector prefers issuing sustainable bonds with maturities under 10 years and in local currency,” ADB said.

Last year, the central bank announced two measures to encourage banks to expand lending for sustainability projects.

First, the BSP will allow the temporary loan top-up of 15 percent to single borrowers’ limit of banks for projects also anchored on sustainability frameworks and plans by the Philippine government or Southeast Asian countries.

Second, the BSP also approved a gradual reduction in reserve requirement of banks for sustainable bonds from 3 percent to 0 percent.

The central bank will allow a reduction by 200 basis points from the effectivity of the policy and another 100 basis points in the succeeding year.